Nicolaou v GPT Re Ltd

[2010] NSWADT 151

CITATION:	Nicolaou v GPT Re Ltd [2010] NSWADT 151
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Lenia Nicolaou and Theodoulos Nicolaou RESPONDENT GPT Re Limited
FILE NUMBER:	085171; 095096
HEARING DATES:	31 August and 1 to 4 September 2009
SUBMISSIONS CLOSED:	4 September 2009
DATE OF DECISION:	16 June 2010
BEFORE:	Higgins S - Judicial Member
CATCHWORDS:	Claim for compensation for pre lease representations
LEGISLATION CITED:	Conveyancing Act 1919 Fair Trading Act 1987 Retail Leases Act 1994 Retail Leases Amendment Act 2005 Trade Practices Act 1974 (Cth)
CASES CITED:	Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd (RLD) [2007] NSWADT 47 D.B. Reef Funds Management Ltd v Valentino Home Fashion Pty Ltd; Valentino Home Fashion Pty Ltd v Westfield Hurstville (Westfield Management) [2008] NSWADT 332 Golden Harvest (Aust) Pty Limited v Paing Pty Limited [2004] NSWCA 85 Golden Harvest (Australia) Pty Ltd v Paing Pty Ltd & Ors (RLD) [2002] NSWADTAP 40 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre (1978) 140 CLR 216 Overlook Management BV v Foxtel Pty Ltd (2002) ATPR (Digest) 46-219 Profilio v Coogee Bay Village Pty Ltd [2009] NSWADT 211 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; [186] ATPR (Digest) 46-083 Samaha & Anor v Corbett Court Pty Limited; Corbett Court Pty Limited v Samaha & Anor [2006] NSWSC 1441
REPRESENTATION:	APPLICANT P O’Loughlin, barrister RESPONDENT D Pritchard S.C., barrister
ORDERS:	1.On or before 24 June 2010, the parties file consent terms of order in accordance with the findings of the Tribunal as set out in paragraphs 113 and 114 of these reasons for decision. 2.On or before 30 June 2010 the parties file and serve written submissions on costs (if any). 3.On or before 14 July 2010, parties file and serve written submissions in reply. 4.The matter is listed for directions on 26 July 2010 at 11am. 5.Liberty to either party to apply on 2 days notice.

REASONS FOR DECISION

Introduction

1 The applicants, Lenia Nicolaou and Theodoulos Nicolaou (Mr and Mrs Nicolaou), have brought a claim, under section 71 Retail Leases Act 1994 (the RLA), against the respondent, GPT Re Limited (File no 085171). The applicants’ claim arises from a retail lease they entered on 10 October 2006. The applicants were the lessee and the respondent was the lessor. The premises the subject of the lease was Shop 02 (the shop or the premises), on the lower level of the Charleston Square Shopping Mall (the Centre), from which Mr and Mrs Nicolaou operated a business, known as ‘Let’s Eat at Charleston Deli’ (the applicants’ business).

2 The applicants seek a number of orders under section 72 of the RLA, including an order that the respondent pay it $400,000 (being the maximum amount the Tribunal has jurisdiction to award) by way of damages for alleged pre-lease misleading representations (i.e. damages arising from alleged breaches of sections 10 and 62D of the RLA) and an order that they be relieved from their obligation to pay rent (i.e. arising from an alleged breach of clause 39.2 of the lease). The alleged pre-lease representations and the alleged breach of the lease relate to disturbances to the applicants’ business as a result of a substantial redevelopment of the Centre that commenced on 4 February 2008 and was ongoing up until the applicants’ lease was terminated on 1 August 2009.

3 The respondent contends that the applicants’ claims are misconceived in that the sections of the RLA relied on by applicants do not apply, or alternatively the evidence does not support their claims. Instead, the respondent has brought its own claim against the applicants, under the RLA (file no 095096). In that claim the respondent seeks an order that the applicants pay it (a) a sum of $67,986.00 for outstanding rent and outgoings, and (b) an amount of $35,800 for the costs incurred by the respondent in meeting the applicants’ obligation to make good the premises as at the date of the termination of the lease as required under clause 29 of the lease. There is no dispute as to the amount of outstanding rent. The only area of dispute is whether the applicants’ should be relieved from paying it.

4 For the reasons set out below, I have found that the applicants’ have failed to establish their claim in regard to the alleged pre-lease misleading representations. However, their claim that the respondent breached clause 39.2 of the lease has been established, giving rise the applicant’s claim of loss of profits as a result of the disturbances caused to their business by the respondent’s construction work. I have also found that the respondent’s claim for the cost of making good the premises at the end of the lease has been established.

Background

5 Mr and Mrs Nicolaou had been operating a business in the Centre since 1988. Initially they operated a takeaway business from a shop on the top level of the Centre. They sold this business in 2002.

6 In October 2000, they opened the business that is the subject of these proceedings. It was in the course of their re-negotiation of their original lease for this business (which was due to expire on 9 October 2006) that the alleged misrepresentations were made.

7 At the time the applicants were negotiating their lease, the Centre consisted of 3 levels: the lower ground level, level 1 and level 2. The major retailers in the Centre were Myer (level 1 and 2), Target (level 1), Best and Less (level 1), Big W (lower ground), Coles (lower ground) and Woolworths (lower ground). There were 2 multi level car parks attached to the Centre - one known as the northern car park and the other known as the southern car park.

8 As I have mentioned, the applicants’ shop was located on the lower ground level. Big W was located at the western end of this level and Coles was at the eastern end. In between these large shops were a number of smaller shops that ran along the southern and northern boundaries on this level. The smaller shops at the eastern end near Coles formed a food hall. The applicants’ shop was on the northern boundary, towards the Coles end, of this level. Also on the northern boundary near the applicants’ shop were 4 other smaller shops (i.e. Nature’s Health, Di Costi Seafoods, Wock n Roll and Red Lea Chickens). The applicants’ shop was between the health food shop and the seafood shop.

9 There were no external entries into or from the northern boundary of this level. The only external entries into and from this level were the 2 entries on the southern boundary from the southern multi-level car park. One entry was close to the Big W end and the other was close to the Coles end. The applicants’ shop was almost immediately opposite the entry at the Coles end. A shop called ‘Harris Farm’ was adjacent to this entry and the applicants’ shop was in the direct view of those who entered the lower ground level from this southern car park entry. Bakers Delight and Joe’s Meats were also on the southern boundary between Harris Farm and Coles. In the concourse between the southern and northern boundary of small shops at the Coles end were 4 smaller food stalls. Towards the upper end of this concourse (i.e. almost in the middle of the floor on this level) were escalators to and from level 1. Another set of escalators was located close to the Big W car park entry. On the basis of the floor plan, the natural flow of customers into the area where the applicants’ shop was located was from the southern car park Harris Farm entry and the escalators located near their shop.

10 The2006 lease negotiations Initially, in June 2006, the applicants were offered a one-year lease, but after discussions Mr Nicolaou had with Ms Belinda Sanhueza, the then leasing executive of the respondent at the centre, he and his wife were offered a 5 year lease. A formal offer was made on or about 17 July 2006 and as part of that offer the applicants were provided with a Lessor Disclosure Statement (as per section 11 of the RLA) and a copy of the tenancy plan for the Centre as at 14 October 2005. The Disclosure Statement contained a statement that no known disturbances to trading were likely to occur during the term of the new lease and that the respondent was ‘undertaking a master planning exercise to determine future opportunities for the Centre, car parks, entries & exit and surrounding roads’ and that it was ‘possible’ that changes would occur during the term of the lease: see paragraph 51 below where the statements are set out in full.

11 On 29 July 2006, the applicants signed the lease and wrote to the respondent identifying the representations of the respondent on which they relied in entering into the lease (see section 11A of the RLA which deals with the lessee’s Disclosure Statement). The relevant representation of the respondent on which the applicants’ said they relied was as follows:

‘We understand that the Lessor is undertaking a master planning exercise and if successful, it may or may not affect our business. We request that the channels of communication remain open to us at any given time to express any concerns of real/possible affects that the renovation will have on our trade. If the effects are major we request an undertaking of assistance by the lessor.’

12 The redevelopment of the Centre In the early part of 2002, the respondent developed a proposal to substantially expand and enhance the Centre and its surrounds. The plan involved purchasing surrounding land from the Bowlers Club and the Local Council. It also involved road changes and a re-zoning of surrounding land and required the necessary statutory development approvals. At various stages during the development process, funding approval and other contractual approvals were required from the respondent’s Board of Directors (the Board).

13 On 13 June 2004, at a regular ‘Retailer Information Evening’, Mr Peter Francis (the General Manager of the Centre) gave a presentation to the retailers about the status of the development proposal. In that presentation, he advised that master plan options were being reviewed and that these involved options of ‘going north, south, east and west from the current building site.’ He also advised that a ‘Community Reference Group’ was to be formed so as to get direct input and feedback on the various options that were being considered in the master planning exercise.

14 On 18 February 2005, a 3-D model of the proposed development was put on public display on level 1 of the Centre, together with 20 large panels containing information about the proposal. This display, Mr Francis explained was effectively the culmination of the recommendations from the ‘Community Reference Group’ and was opened by the Mayor of the Local Council. On 22 February 2005, Mr Francis convened another ‘Retailer Information Evening’ where the model on public display and the broad concepts of floor layout, car park layouts and other issues were discussed.

15 There was no obligation on retailers to attend these information evenings. There was a long-standing practise of such evenings where various matters of interest to retailers was discussed.

16 The public display of the 3-D model was removed after 6 weeks and was re-located to the corridor outside the Centre Management Office.

17 The status of the progress of the proposed re-development were also explained by Mr Francis, at the regular ‘Retailer Information Evenings’, 29 June 2005, 11 July 2006, 10 April 2007, 9 July 2007 and 15 October 2007. Attendance at these meetings was not compulsory.

18 The Development Applications (6 in total) for the proposed development were lodged with the Local Council in February 2007. They were subsequently given approval in early December of that year. All other matters having been finalised, work on the development of the Centre commenced on 4 February 2008.

19 In a memorandum, dated 29 January 2008, Mr Francis informed all retailers that work would commence on this date with the demolition, in part, of the southern multi-level car park. Three days later, on 1 February 2008, retailers were sent a further memorandum from Mr Francis in which he confirmed the starting date of the redevelopment work and that on this day the existing entry from the southern car park to Harris Farm would be closed. (i.e. the entry opposite the applicants’ shop).

20 It is the contention of the applicants that this closure and the ongoing development work to the Centre caused a severe disturbance and disruption to their business as there was a substantial loss of traffic (i.e. potential customers) to the lower ground level, and particularly at the eastern end of that level. They contended that had they been made aware of the extent of the proposed re-development work they would not have entered the lease.

21 Rent abatement In April 2008, Mr Nicolaou, approached the respondent’s leasing agent and requested financial assistance. He said with the changes to traffic flow he could no longer meet his obligations under the lease. The respondent acknowledged that the re-development work had caused a disturbance to the applicants’ business through a loss of customers. However, its position was that this was not entirely the reason for a downturn in customers. It contended that the re-opening, in September and October 2007, of the near-by refurbished Kotara Shopping Centre (Kotara) had already resulted in a loss of customers prior to any development work having commenced. The respondent also contended that there were matters the applicants’ could do to improve their business and hence customer base. This and the Kotara re-opening were matters that were not in the control of the respondent. After being provided with accounts from the applicants’ business the respondent did provide the applicants with an offer of an abatement of rent, on 7 May 2008. Further offers of rental abatement were made on 22 May 2008 and again on 29 April 2009. The latter offer was made some 6 months after the applicants’ had filed their claim with the Tribunal.

22 Termination of the lease The applicants’ lease was terminated on 5 August 2009. It was terminated on the applicants’ election after the respondent issued them with a demolition notice under clause 41 of the lease.

The evidence

23 Mr and Mrs Nicolaou each swore a number of affidavits in support of their claim. They each gave oral evidence and were extensively cross examined.

24 The respondent relied on the affidavits sworn by Mr Francis (several in number), Ms Belinda Sanhueza (a leasing executive of the respondent), Ms Amber Pardy (also a leasing executive of the respondent), Mr Anthony McNulty (General Manager of Retail Development for the respondent), Mr Mark Shaw (owner of the Terry White Chemist at the Shopping Centre), Mr Adam Weaver (store manager of Woolworths at the Shopping Centre) and Mr Ian Dunn (the Operations Manager of the Myer store at the Shopping Centre). Mr Francis, Mr McNulty, Ms Pardy, Ms Sanhueza, Mr Shaw and Mr Weaver also gave oral evidence at the hearing and were cross examined.

25 Both parties tendered into evidence expert reports on the issue of damages. The applicants’ expert was Mr Mathew Gwynne, a chartered accountant. The respondent’s expert was Mr Tony Samuel, also a chartered accountant. On 2 September 2009, Mr Gwynne and Mr Samuel prepared a conjoint report. They subsequently gave oral evidence conjointly before the Tribunal.

26 Both applications were heard on 31 August, and 1 to 4 September 2009. There is no dispute that the Tribunal has jurisdiction to hear and determine these applications

27 As the most substantial claim is that of Mr and Mrs Nicolaou, it is appropriate to first deal with their claim.

THE APPLICANTS’ CLAIM

A: The Pre-Lease Misrepresentations Claim

28 Section 10 of the RL Act relevantly provides as follows:

10 Right to compensation for pre-lease misrepresentations

(1) A party to a retail shop lease is liable to pay another party to the lease ("the injured party") reasonable compensation for damage suffered by the injured party that is attributable to the injured party’s entering into the lease as a result of a false or misleading statement or representation made by the party, or any person acting under the party’s authority, with knowledge that it was false or misleading.
(2) The giving of a lessor’s disclosure statement to a prospective lessee under a retail shop lease is considered to be the making of a representation by the lessor to the lessee as to the information in the disclosure statement.
(2A) The making of a representation by a prospective lessee in a lessee’s disclosure statement given to a prospective lessor under a retail shop lease that the prospective lessee has sought independent advice, or as to statements or representations relied on by the prospective lessee in entering the lease, is considered to be the making of a representation by a lessee to the lessor.
(3) …

29 It is not disputed that the onus is on the applicants to prove their claim under section 10 of the RLA. That is, the applicants must prove, on the balance of probabilities, the following:

(a) prior to entering into the lease, the respondent, or a person acting on behalf of the respondent, made a statement or representation that was false or misleading;

(b) the respondent knew that the statement or representation that it, or a person on its behalf, made was false or misleading;

(c) the applicant relied on the statement or representation of the respondent when entering the lease; and

(d) the applicant suffered loss and damage as a result of the respondent’s false or misleading statement or representation.

30 Nor is it disputed that the test as to whether a statement or representation is false or misleading is an objective one: see Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre (1978) 140 CLR 216.

31 In this application, the alleged misleading statements or representations are as to future matters (i.e. representations as to events that would or would not occur during the term of the applicants’ lease).

32 In Golden Harvest (Aust) Pty Limited v Paing Pty Limited [2004] NSWCA 85 at [38] and [45], the Court of Appeal (per Bryson JA (with whom Beazley and Ipp JJA agreed) said the following about alleged false and misleading statements or representations as to future matters under section 10 of the RLA:

[38] In my opinion, without attempting an exhaustive exposition of the workings of s.10, a statement or representation to the effect that the representor was to do something in the future is not in my opinion false or misleading if the representor actually intended to act in the way represented, but is misleading if the representor did not have a reasonable basis for stating that it would so act in the future. In this way the representation has the effect of a statement of the representor’s present intention. Proving knowledge that the statement was false or misleading is an additional requirement; although lack of knowledge would often be proved by much the same material as absence of reasonable basis.

33 Accordingly, in this application, to succeed in its claim the applicants were required to prove that, at the time the respondent made the alleged misleading statement/ representation, it did not have a reasonable basis to state that the specified events would or would not happen during the term of the applicants’ lease: see also Golden Harvest (Australia) Pty Ltd v Paing Pty Ltd & Ors (RLD) [2002] NSWADTAP 40 at [32], which was cited with approval by the Court of Appeal at [45] and [46]. Had the RLA contained a provision along the lines of section 51A of the Trade Practices Act 1974 (Cth) or section 41 of the Fair Trading Act 1987 (NSW), the onus would have been on the respondent to prove that at the time it made its statement as to the specified future events, it had a reasonable basis to make the statement it did.

34 Mere silence, is not as a general rule, a misrepresentation. However, at common law, ‘silence can give rise to an actionable misrepresentation where there is a duty upon the representor to reveal a matter if it exists, and where the other party is therefore entitled to infer that matter does not exist from the silence of the representor’: see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR at [38] and Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; [186] ATPR (Digest) 46-083. Circumstances where a duty to disclose may arise includes (a) where silence distorts a positive representation, (b) where the contract requires utmost good faith (uberrimae fidei) and where there is a fiduciary relationship between the parties.

35 In my opinion, there is nothing contained in the terms of section 10 of the RLA to suggest that Parliament intended the common law, as to a misrepresentation by silence, to be displaced.

36 Section 62D of the RLA provides:

62D Misleading or deceptive conduct in connection with retail leases

A party to a retail shop lease must not, in connection with the lease, engage in conduct that it is misleading or deceptive to another party to the lease or that it is likely to mislead or deceive another party to the lease.

37 It is the contention of the respondent that section 62D does not apply to pre-lease conduct (i.e. representations) of the parties to a lease.

38 In my opinion, such a restricted construction to the ordinary words used in this section is not warranted. The words ‘in connection with’, should not be construed narrowly and should be given their ordinary meaning.

39 Section 62D was inserted into the RLA, in November 2005, by the enactment of the Retail Leases Amendment Act 2005. The section was one of 3 sections that made up a newly inserted Division, Division 2, in Part 7A of the RLA. Division 1 dealt with unconscionable conduct (see sections 62A and 62B) and the newly inserted Division dealt with misleading or deceptive conduct (see sections 62C, 62D and 62E). The provisions in Division 2 commenced on 1 January 2006.

40 The unconscionable conduct provisions in Division 1 of Part 7A are expressed in similar terms to section 62D in that they prohibit a lessor and a lessee, ‘in connection with’ a retail lease from engaging in unconscionable conduct: see subsections 62B(1) and 62B(2) of the RLA.

41 It does not appear that the construction of subsections 62B(1) and (2), or section 62D have been the subject of consideration by the Tribunal previously. However, the Tribunal has accepted that pre-lease conduct of a lessor or lessee may fall within the unconscionable conduct provisions: see Profilio v Coogee Bay Village Pty Ltd [2009] NSWADT 211 and D.B. Reef Funds Management Ltd v Valentino Home Fashion Pty Ltd; Velention Home Fashion Pty Ltd v Westfield Hurstville (Westfield Management) [2008] NSWADT 332.

42 To accept the construction of section 62D as contended for by the respondent, it is arguable that pre-lease unconscionable conduct would not fall within subsections 62B(1) and (2) of the RLA. This would severely limit the operation of these subsections and section 62D. This cannot have been the intention of Parliament when enacting Part 7A into the Act. It is noted that in the explanatory note to the Retail Leases Amendment Act 2005 it is stated that one of the objects of the Amending Act included: ‘(e) to expand the jurisdiction and functions of the Administrative Decisions Tribunal (the Tribunal) in connection with retail shop leases.’ The explanatory note goes on to state, in regard to the new misleading and deceptive conduct provisions of Division 2, that these provisions and those in Division 1 of Part A are to ‘reflect the schemes contained in the Trade Practices Act 1974 (Commonwealth) and the Fair Trading Act 1987 (NSW).’ It is well accepted that the unconscionable conduct and misleading and deceptive conduct provisions in these legislative schemes include pre-contract representations and conduct.

43 Furthermore, implicit in the respondent’s contentions is that section 10 of the RLA is a code in regard to pre-lease misleading statements and representations. Following the decision of the Appeal Panel in Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd (RLD) [2007] NSWADT 47 at [105] to [122], which in turn followed the decision of Palmer J in Samaha & Anor v Corbett Court Pty Limited; Corbett Court Pty Limited v Samaha & Anor [2006] NSWSC 1441, it clearly is not a code.

44 In any event it is unnecessary for me to make any conclusive finding on this issue as I have found that the statements and representations of the respondent that are the subject of this application are not misleading.

45 In their amended application, filed on 20 August 2009, the applicants particularised the alleged misleading representations and conduct of the respondent (see grounds 1 and 2) as follows:

-an oral representation by Ms Amber Pardy, of the respondent, to Mr Nicolaou, in which Ms Pardy represented:
(a) that the respondent’s future plans involved the creation of a cinema complex, cafes and restaurants,
(b) that the applicants would likely have to relocate within the Centre and
(c) that customer traffic would be unchanged.
( Ms Pardy’s oral representation )
-a written representation in its disclosure statement to the applicants in which the respondent represented:
(a) that it was undertaking a master planning exercise; and
(b) during the currency of the lease there was no likelihood of there being a disturbance to the applicants’ business which would have a significant adverse affect on trading when the respondent knew of its detailed plans for a substantial redevelopment of the Centre which would have the consequence of detrimentally affecting, as it did, the business of the applicants

( the Disclosure Statement representation )

-a representation by silence that no ‘substantial redevelopment’ of the Centre would take place during the term of the applicants’ lease, in circumstances where the respondent was under a duty to disclose to the applicants the scale and scope of the substantial redevelopment of the Centre during the term of the applicants’ proposed lease and which would detrimentally affect the applicants’ business. ( the representation by silence )

46 Ms Pardy’s oral representation – In his affidavit, sworn on 2 September 2008, Mr Nicolaou set out a conversation he asserted he had with Ms Pardy (the leasing executive employed by the respondent) in about June 2006 in the course of negotiating a new lease for the premises: see Exhibit A2 at paragraphs 2 and 3. He asserts that after making enquiries about ‘the future plans for the centre’, Ms Pardy said words to the effect: ‘Escalators are going to be changed to travelators in front of your shop.’ He asserts he responded by saying words to the effect: ‘Will this mean a redirection in traffic and will this have an effect on our business?’ Mr Nicolaou asserts that Ms Pardy responded with words to the effect: ‘That’s not going to happen. No development application has been lodged and this is not likely to occur until late this year. Traffic will move exactly the same way. …’

47 In his subsequent affidavit, sworn on 30 March 2009, Mr Nicolaou said that the abovementioned conversation was not with Ms Pardy, it was with Ms Belinda Sanhueza, the former leasing executive of the respondent: see Exhibit A3 at paragraph 25.

48 During cross-examination it was put to Mr Nicolaou that the conversation had in fact never occurred. It was pointed out to him that his evidence changed after being served with the affidavits of Ms Pardy and Ms Sanhueza. Attached to the affidavit of Mr Pardy were detailed file notes Ms Pardy had made of her conversations with Mr Nicolaou at the relevant time. Ms Sanhueza, on the other hand did not make contemporaneous notes. Mr Nicolaou responded to the questions asked of him by acknowledging that his memory was not very good because of the passage of time, but he did not resile from his evidence that a conversation of this nature did occur.

49 In my opinion, it was appropriate for Mr Nicolaou to acknowledge that his memory of events was not so good. While I accept he believes a conversation to the effect deposed by him did occur, in my opinion, in light of Ms Sanhueza’s evidence that no such conversation occurred and the fact that there in no other contemporaneous evidence that supports Mr Nicolaou’s version of events, I am unable to make a finding that a conversation as deposed by Mr Nicolaou did in fact occur. In reaching this conclusion I do not draw any adverse inferences about the evidence that was given by Mr Nicolaou.

50 The Disclosure Statement representation – the respondent’s Disclosure Statement of 17 July 2006 contained the following statements:

‘ Details of any anticipated disturbance to trading
Give details of any disturbances likely to occur during the term of the lease, where known, where this will have a significant adverse effect on trading.
-None’

51 In the table headed ‘Retail shopping centre details’ there was the following statement:

Changes or developments planned by the lessor for:

· Retail shopping centre

· Surrounding roads

No xYes If yes attach details

The Lessor is undertaking a master planning exercise to determine future opportunities for the Centre, car parks, entries & exit and surrounding roads. It is possible that changes to the Centre, car parks, entries & exit and surrounding roads could occur during the term of the lease. Any changes to the Centre, car parks, entries & exit and surrounding roads are subject to the Lessor’s board approval, council approval (to the Lessor’s satisfaction) finance, tenant pre-commitment, statutory approvals and other market factors.

xNo Yes If yes attach details

None planned at this point in time. However, possible change may occur in the future as the result of the Master planning exercise.

52 As outlined in the background above, there is no dispute that subsequent to the respondent making the abovementioned statements and during the term of the applicants’ lease the respondent did commence construction on the re-development of the Centre and its surrounds and that the construction work:

(a) involved substantial changes to the Centre, car parks, entries and exits and surrounding roads; and

(b) caused a disturbance to the applicants’ business which had an adverse effect on their trading.

53 Once again, as I have already explained, the issue for determination is whether, at the time the abovementioned statements/representations were made, the respondent had no reasonable basis to make the statements/representations about the specified disturbances and changes occurring or not occurring during the term of the applicants’ lease (i.e. any time from 10 October 2006 to 9 October 2011).

54 In his evidence, Mr Francis said his responsibilities as General Manager included coordinating and ensuring that the respondent’s Disclosure Statements to tenants at the Centre were ‘reviewed and up to date’: see Exhibit 5 at paragraph 96. Mr Francis said he had reviewed the content of the Disclosure Statement provided to the applicants and was satisfied with its contents. In particular he said:

’98. … [I] was comfortable that the disclosure and reference to the ‘master planning exercise’ under ‘Changes or developments planned by the lessor’ was accurate and reflected the then position on the possible development.’

55 In a subsequent affidavit (filed some months later), Mr Francis explained why he was comfortable with the statement about ‘Changes and developments planned’ and the statement about disturbances: see Exhibit R8 at paragraph 4 and 6. In regard to the statement about disturbances, Mr Francis said ‘I believed that there was no disturbance likely to occur that was known and which would have a significant adverse effect on trading’. In regard to the statement about changes or developments planned, Mr Francis said he was ‘concerned not to give any tenant an inaccurate statement, such as the proposed development would proceed so that it would or would not have a positive or negative effect on any particular tenant’.

56 Although I found evidence of this nature given by Mr Francis to be self-serving, on balance, having regard to the documentary evidence filed by the respondent, I find that the applicants have failed to establish that, the statements/representations were misleading. That is, the applicants failed to establish that, at the time the statements/representations were made, the respondent had no reasonable basis to say that during the term of their lease there were to be no known disturbances and that there was only a ‘possibility’ that changes to the Centre and its surrounds would be made.

57 The phrase ‘major planning exercise’ appears to have been chosen very carefully and had it appeared on its own without any further explanation, I may have come to a different conclusion. It is a phrase that had a particular meaning within the respondent. Mr Anthony McNulty (General Manager of Retail Development for the respondent) explained that every retail development had two very separate phases: see Exhibit R10. He said there was the ‘planning for development, or master planning phase’ and the ‘under development phase’. Everything occurring prior to the physical construction of the development, he said fell within the ‘master planning phase.’ He said that until the ‘master planning’ phase was completed, every proposed development was no more than a ‘possible’ development. Mr Francis gave similar evidence. While the respondent categorises everything that occurs prior to the commencement of construction as falling within the ‘master planning phase’, in my opinion, this does not mean that this is how these words are understood more generally. I accept that no development can occur until such time as the appropriate planning approvals have been granted and in that sense any proposed development is no more than ‘a possibility’. To put it in another way, until such time as planning approval is obtained, it is always ‘possible’ that any proposed developments will not proceed in part or whole. The extent of the ‘possibility’ of the proposed development proceeding, or not proceeding, will of course depend on the overall circumstances at any particular time.

58 As mentioned above, in November 2002, the respondent’s Board resolved to approve funding to ‘complete the strategic program and preliminary investment proposal’ for the Centre, in November 2002: see Exhibit R1 at tab 1. The document prepared for presentation to the Board at this meeting, stated that a ‘long-term development block plan, land acquisition strategy, and preliminary development scheme’ had already been funded and completed. That is, a block plan for the re-development of the Centre and its surrounds had all ready been formulated, as had a strategy for the acquisition of land for the proposed re-development. At the November 2002 meeting, the Board was being asked to approve, and did approve, were the next 2 stages in the re-development process. These stages were identified as ‘Land Acquisition & Town Centre Master Plan’ and preparation of ‘Rezoning & DA Applications’. Dates (i.e. scheduled dates) for the completion of each stage was also recorded (i.e. December 2002 and March 2003). Reference was also made to the ‘future programme’, which included ‘secure authority approvals’ (scheduled for completion in September 2003) and ‘commence construction’ (scheduled for March 2004).

59 On the material before the Tribunal, it is evident that as at July 2006, the respondent was reaching towards the finalisation of these 2 stages in its re-development plan for the Centre. That progress is recorded in the minutes of the ‘Charlestown Square Project Control Group’ (the PCG), an internal committee of the respondent to oversee and monitor the progress of the proposed re-development of the Centre and its surrounds. The PCG was formed some time prior to 2003. The Committee met every 6 weeks and Mr Francis and Mr McNulty were members: see Exhibit R5 at paragraph 7. Mr Francis’ membership of the Committee meant that he was at all times informed about progress of the proposed re-development.

60 Although the proposed re-development had not progressed as scheduled in November 2002, by the end of 2004 there had been widespread community consultation about the proposal. The consultation led to the 3 D model of the proposed re-development being put on public display, in February 2005. The evidence shows that the Local Council Mayor opened this display and strongly supported it. Discussions were also commenced with the Bowlers Club and the Council in regard to acquisition of land and the issue of re-zoning. In February 2006, Bovis Lend Lease (BLL) (the contracted developer) prepared a detailed ‘concept plan’ for the proposed re-development: see Exhibit R1 tab 18. This ‘concept plan’ included details of the proposed re-development of retail areas on each level of the Centre and the surrounding car parks. It is evident from these plans that the proposal included an extension to the southern multi level car park and the western (Big W) and eastern (Coles) ends of the lower ground level. However, there were no proposed changes to the applicants’ shop, or the surrounding smaller shops. The concept plan also identified changes to the upper levels of the Centre and the surrounds to the Centre. A copy of the plans had been tabled and endorsed at the meeting of the respondent Board on 26 April 2006. During cross-examination, Mr Francis conceded that the ‘concept plan’ followed the outline of the 3-D model that had been on public display and that the development applications that were ultimately lodged and approved by the Local Council did not substantially depart from these. However, the lodgement of the development applications did not occur until 6 months after the respondent’s statements/representations were. There is no evidence before the Tribunal that preparation of the development application had been completed before the statements/representations were made or before the applicants’ lease came into force.

61 At the April 2006 meeting the Board also approved the entry of formal agreements (conditional on obtaining approval for the development) with the Local Council and the Charlestown Bowling Club in regard to acquisition of land necessary for the re-development proposal.

62 The minutes of the PCG meeting of 14 July 2006, noted that the development applications had not been lodged and re-zoning had not been finalised: see Exhibit R1 at tab 34. The scheduled dates for completing these were extended to October 2006 and March 2007, respectively. It was noted that no unnecessary delays were expected for finalising the re-zoning as there was political and community support for the proposed development. However, some risks remained and were noted. Construction was recorded as being scheduled to commence in April 2007 and completed in August 2009. While these were dates fell within the period of the applicants’ proposed new lease, they were also dates that had continually been extended since the commencement of the re-development proposal.

63 In the PCG meetings that followed (i.e. 25 August 2006 and 4 October 2006: see at Exhibit R1 tab 38 and 40) the estimated time frames for lodgement of development and re-zoning applications and the commencement of construction were again extended for several months. In attendance at these meetings were 2 representatives of BLL. They had not been present at the previous meetings. The minutes of these meetings of the PCG do not record any changes to that which had previously been proposed and approved.

64 The minutes of the 4 October 2006 meeting of the PCG, at item 3.5.10, states:

‘BLL is preparing a detailed construction staging and sequencing model which is to be presented at ERG on 3rd October. This will provide the basis from which abatement and underpinning budgets will be forecast, …’

65 No construction staging and sequence model was put into evidence. Nor was there any material as to the basis on which rent abatements were assessed, even though the July 2006 minutes stated that these were in the process of preparation.

66 Although it is evident that, by 6 July 2006, the respondent had progressed well beyond a ‘master’ planning stage, it cannot be said from what is recorded in the minutes of the PCG meetings that the respondent knew that construction of its development proposal would in fact commence during the term of the applicants’ lease. That the respondent had every intention of proceeding with construction of the re-development proposal as soon as the development and re-zoning applications were finalised and that construction would involve a substantial re-development of the Centre (including the re-development of each of the retail levels of the Centre and the surrounding car parks) is not the question. The question is whether, as at July 2006, the respondent had no reasonable basis to say that, during the term of the applicants’ lease, there would be no known disturbances to the applicants premises (which would have a significant adverse effect on trading to the applicants’ business) and that there was only a ‘possibility’ of changes to the Centre and its surrounds. It was the applicants’ contention that as at July 2006, the respondent knew that the re-development would go ahead during the term of their lease and that it also knew that the construction work for the re-development would cause a disturbance to their premises, which would have a significant adverse effect on their trading.

67 In my opinion, this is not reflected in the minutes of the PCG. Although the respondent was progressing towards the lodgement of development and re-zoning applications, as at July and October 2006 these had not been done. There were still some outstanding matters and the position of the respondent had at all times been that construction would not commence before the development and the re-zoning applications had been approved. The scheduled dates for these approvals had continually been extended. Accordingly, it cannot be said that as at July and October 2006, the respondent had no reasonable basis to state/represent that changes to the Centre and its surrounds, during the term of the applicants’ lease, were only a ‘possibility’.

68 Additionally, there is no evidence to show that in July or October 2006, Mr Francis knew that if construction on the re-development were to commence during the term of the applicants’ lease, BLL would begin by demolishing the southern car park. He did know that demolition and re-construction of the southern car park was part of the re-development proposal, however, as at July 2006, he did not know when this would start. It was the position of the respondent that, not until some time after February 2007 (date on which the development applications had been lodged), was it confident that the re-development would proceed and it amended its disclosure statements accordingly from this time: see Exhibit R1 at tab 71.

69 In my opinion, on the material before the Tribunal, a representation by silence, as particularised, is not established. For a representation of this nature to arise, it must be established that the respondent, through statements/representations it made, or conduct it engaged in gave rise to a representation by silence that ‘no substantial redevelopment’ of the Centre would take place during the term of the applicants’ lease. Leaving aside the issue of the respondent’s knowledge, in my opinion there is nothing contained in the respondent’s Disclosure Statement, nor is there evidence about its conduct, which would give rise to such a representation. While the applicants may have wanted to be provided with more information about the status of the respondent’s ‘master planning exercise’ and the ‘possible changes’, their failure to do so does not give rise to a representation as particularise by the applicants.

Reliance

70 On the basis of my findings, it is unnecessary for me to make any findings as to reliance.

71 However, I as noted in paragraph 11 above, in their Disclosure Statement to the respondent, the applicants’ expressly acknowledged the respondent’s statement that it was undertaking a ‘master planning exercise’/‘renovation’ and that this exercise ‘may or may not affect’ their business. The applicants were clearly concerned about the ‘real/possible affects’ this would have on their trade and requested an undertaking of assistance. On the basis of their statement it is difficult to see how the applicants could establish reliance even if the respondent’s statements/representations in their Disclosure Statement were to be found to be misleading.

72 Nevertheless, I accept the evidence of the applicants that they did not appreciate the extent of what was being proposed by the respondent in its re-development plan, or the substantial effect it would have on them. However this is not the test for establishing a breach under sections 10 or 62 D of the RLA.

Conclusion

73 For the reasons set out above, I find that the applicants’ claim in regard to the alleged pre-lease misleading statements and representations has not been established.

B: The alleged breach of the Lease

74 Section 34 of the RLA makes provision for a lessee to be compensated for disturbances to its leased premises by conduct of the lessor. It relevantly provides as follows:

34 Lessee to be compensated for disturbance
(1) A retail shop lease is taken to provide that if the lessor:
(a) inhibits access of the lessee to the shop in any substantial manner, or
(b) takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop, or
(c) unreasonably takes any action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop, or
(d) fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop and that is attributable to causes within the lessor’s control, or
(e) fails to rectify any breakdown of plant or equipment under the lessor’s care or maintenance, or
(f) in the case of a shop within a retail shopping centre, fails to adequately clean, maintain or repair the retail shopping centre (including common areas),

and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for any loss or damage (other than nominal damage) suffered by the lessee as a consequence.

(2) In determining whether a lessor has acted unreasonably for the purposes of subsection (1) (c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices.

(3) …

75 Clause 33 of the lease provided that the respondent was to allow the applicants to occupy and use the premises without the respondent ‘interrupting or disturbing them’, except where the lease provided otherwise. Clause 38.2 provided that the respondent could do any ‘building work or change’ the Centre. And clause 39 set out the circumstances when the respondent could do ‘building work.’ It relevantly provided as follows:

’39.1 We must give you as much notice as is reasonably possible of any repairs, maintenance, or building work. We must cause as little disruption to your use of the premises as is reasonably possible in the circumstances.

39.2 If we do anything that is within our control and that you prove adversely affects your use of the premises , we must negotiate with you in good faith about reducing the rent or any other money by a reasonable amount. But we do not have to reduce the rent (or pay compensation) if we drew your attention in writing to the risk of that thing occurring before you entered into this lease or any previous lease or licence.’

76 Clause 39.1 must be read subject to section 33 of the RLA which relevantly provides:

33 Lessee to be given notice of alterations and refurbishment

The lessor must not commence to carry out any alteration or refurbishment of the building or retail shopping centre of which the retail shop forms part which is likely to adversely affect the business of the lessee unless:
(a) the lessor has notified the lessee in writing of the proposed alteration or refurbishment at least 2 months before it is commenced;
(b) …

77 The purpose underlying clause 39.2 is to require the lessor, who, through acts and omissions within its control, causes a significant disruption of the premises of a lessee, or causes a disruption that has a significant adverse effect on trading of the lessee in the shop, to negotiate with the lessee as to an appropriate level of compensation for that disruption and loss. The form of compensation being a rent abatement for the period of disruption. Without such relief a lessee may be placed into a position where it can no longer trade and hence loose its benefits under the lease, through no fault of its own.

The evidence and findings

78 In this application, on 20 December 2007, 13 days after obtaining approval of the development applications and less than 2 months before construction work commenced, Mr Francis wrote to the applicants, in accordance with section 33, to inform them that the respondent was ‘proposing to alter and refurbish’ the Centre and that the works were anticipated to commence in February 2008 and be completed by June 2010. The construction works were described as ‘an additional 4 mini majors, 110 speciality stores, two food courts and an entertainment and leisure precinct which will include a cinema complex, gym and restaurants and new car parks’. It was not until 18 January 2008 that the applicants and other retailers were given an outline of the construction programme: see Exhibit A1 at LN1 page 101. Four to 5 days notice was given of the actual start date of construction, where it would commence and what was involved.

79 On the material before the Tribunal, it is arguable that the strict requirements, let alone the spirit of, section 33(a) may not have been met. However, as this was not raised I have considered it no further.

80 At the time construction work commenced, under the terms of their lease, the total amount payable by the applicants for each calendar month was $10,365.25 (excluding GST). This was made up of $8,472.53 (excluding GST) for rent, $343.00 (excluding GST) for marketing, $1,331.70 (excluding GST) for operating expenses and $218.02 (excluding GST) for air conditioning.

81 There is no dispute that the construction work of the respondent adversely affected the applicants’ trade and that the respondent did not inform the applicants of this possibility in accordance with clause 39.2 of the lease. Accordingly, the issue for determination is:

(a) whether the respondent failed to negotiate in good faith about reducing, by a reasonable amount, the rent, or any other amount that was due and payable, and

(b) if it did so fail, what remedies applied.

82 The obligation to negotiate in good faith is an obligation to act co-operatively, fairly and reasonably so that the legitimate interests of both parties in achieving the objects of the contracted lease: see for example Overlook Management BV v Foxtel Pty Ltd (2002) ATPR (Digest) 46-219. Under clause 39.2, subject to the applicants establishing a loss as a result of the respondent’s construction work, the obligation to negotiate in good faith was on the respondent and its obligation was to act fairly and co-operatively in compensating (i.e. through a reduction in rent and/or any other payment due by the applicants under the lease) the applicants for their loss.

83 It was the evidence of Mr Nicolaou that following the closure of the Harris Farm entry from the southern car park the number of customers in and around his shop immediately fell by about 25-30%: see Exhibit A5 at paragraph 45. As mentioned above, the closure occurred on the first day of construction, 4 February 2008. Mr Nicolaou said that the number of customers continued to fall, especially after the May 2008 closure of the Harris Farm store. His estimate was that by the end of 2008, the number of customers in and around his store had fallen by 40-50%. That is, there were 40-50% fewer potential and actual customers to what had been around prior to the commencement of the respondent’s re-development work.

84 Mr Nicolaou did not sit on his hands. In early April 2008, he approached the respondent’s leasing executive requesting assistance with the rent. As requested, the applicants provided the leasing executive, Ms Kirsty Leo, with a copy of their monthly profit and loss statements for the period June 2006 to March 2008 and other relevant profit and loss statements. After not receiving any response from the respondent’s leasing executive, on 29 April 2009, the applicants wrote to Mr Francis and Ms Kirsty Leo: see Exhibit A1 at LN1p129 and Exhibit R1 at tab 54. In that letter they again set out the facts as previously presented to the respondent. This included a statement ‘We cannot afford to pay any rent’.

85 The applicants met with Mr Francis and Ms Leo on 7 May 2008. A file note written by Ms Leo states that Mrs Nicolaou walked out of the meeting when discussions centred on ways she and her husband might ‘improve, change, enhance, their business’: see at Exhibit R1 at 54. In the file note, prepared by Mr Francis, of this meeting, he states that he advised that he was waiting to see what the applicants could pay. He noted lost sales to ‘Kotara’ for the months of October, November and December 2007 to be $35,000 and that Mr Nicolaou had said that this was his ‘annual profit gone’.

86 Kotara was located 4.55km away from the Centre and Mr Francis described it as the respondent’s main competitor: see Exhibit R6 at paragraph 8. During 2006 and 2007, Kotara underwent major redevelopment. Construction commenced in May 2006 and was completed in August 2007. When Kotara re-opened in September and October 2007, there was a decline in the number of customers at the Centre and hence a fall in overall sales, including a fall in sales at the applicants’ business.

87 Immediately following his meeting with the applicants on 7 May 2008, Mr Francis wrote to the applicants: see Exhibit R1 at 54. In that letter he noted sales from the applicants’ business was down and agreed to ‘provide rent relief to 13.3% occupancy cost (rent as a % of turn over)’. This he said equated to approximately $2,000 per month and that it would be backdated to April 2008 and reviewed in 3 months.

88 Subsequently, the applicants’ solicitor corresponded with Mr Francis and sought compensation for the loss of business as a result of the construction works and the alleged pre-lease misrepresentations by the respondent. Mr Francis replied on 9 May 2008. On 22 May 2008, Mr Francis and Ms Leo had an informal meeting with the applicants. The file note, prepared by Mr Francis, of this meeting stated that he had informed the applicants that he was ‘eager not to pursue legal options’ and ‘to give compensation’ and that compensation would be made: see Exhibit R1 at 54. It is also noted that he said he would ‘love to see a counter offer for the abatement that was reasonable-not zero. Sales down $10K (25%) no where close to 100% which would warrant a zero rent.’ He also noted that the applicants reiterated their inability to pay rent.

89 A month later, on 20 June 2008, Ms Leo wrote to the applicants making a further formal written offer of abatement of rent: Exhibit R1 tab 55. Ms Leo again acknowledged that the redevelopment work had an impact on the applicants’ business. The offer of abatement was that the applicants’ base rent would be reduced by $5,200 (exclusive of GST) per month for the period 1 February 2008 to the end of that year. No reduction was offered towards the other costs that were due and payable by the applicants. This offer reduced the applicants monthly rent commitment by almost a half. The offer was made open for 7 days and if accepted was subject to the applicants agreeing to pay the rent that was outstanding by the end of July 2008, to release the respondent (including its manager agents and employees) from all claims the applicants might have had in connection with, or leading to, the circumstances that gave rise to their request for a rent abatement and a number of other conditions.

90 The applicants’ did not respond to this offer. Nor did they pay any rent. They had not paid rent since April 2008. It was the evidence of the applicants that they did not pay the rent and outgoings because they could not pay the rent due to the fall in profits as a result of the respondent’s construction work. The respondent did not reduce the rent amount as per the offer, it continued to invoice the applicants for the full rent that was due and payable.

91 Following a failed mediation, on 4 September 2008, the respondent issued the applicants with a Notice under section 129 of the Conveyancing Act 1919, giving the applicants 14 days in which to pay the outstanding full rent and the other monthly costs that were due and payable under the terms of the lease. Subsequent to this, the applicants filed their application for original decision in the Tribunal.

92 On 29 April 2009, the respondent made two further formal written offers of abatement: see Exhibit R1 at tab 62. One offer related to the period 1 February 2008 to 31 December 2008 and the other offer related to the period 1 January 2009 to December 2009. The offer for the first period was an abatement of $5,790.91 (excluding GST) and the offer for the second period was an abatement of $6,250 (excluding GST). It is not clear the basis on which the abatement was increased for 2009. However, I assume it was increased to take into account the annual increase in rent under the lease. In any event the offers were open for 14 days and were made subject to similar conditions as the June 2008 formal offer. Again this offer was not accepted.

93 In his oral evidence, Mr Francis said that an abatement was given once actual impacts were known. He also said that they were temporary and given in ‘12 month blocks to help the tenant plan.’ He also said that the offers made to the applicants were ‘very generous’ and felt that their conduct in refusing the offers was unreasonable, particularly as ‘every other retailer accepted the terms.’ He said he was anxious to keep them in the premises during the development and was anxious to keep working with them while trying to resolve the situation.

94 Once again, in opinion these are self-serving statement by Mr Francis.

95 Up until April 2008, the applicants had been tenants at the Centre for about 18 years. On the material before the Tribunal the applicants were model tenants in that there was no history of arrears in rent and other payments that were due under their lease. When, in April 2008, the applicants approached him for rent relief as a result of the respondent’s construction work, Mr Francis appears to have questioned the basis on which the applicants sought relief. The applicants provided him with the necessary information in order for him to make an appropriate assessment of their loss as a result of the construction works. This in my opinion he failed to do in April 2008 and he continued to do so. With the exception of $9,486 in rental abatement via abatement vouchers, the respondent did not, until shortly before the hearing of this application, credit the applicants account with the amounts contained in the offers of abatement. It is difficult to understand this when the respondent, on its own assessment, determined that this amount was reasonable. Instead the respondent adopted a very adversarial approach, knowing at all times that the actual sales, and consequently the gross profit, of the applicants business was continually falling. It was the latter which should have formed the basis on which the respondent made its assessment of the consequent adverse affect of its construction work on the applicant’s business: see Exhibit 1 at paragraphs 36 to 39. Whether it did consider this is difficult to know as no explanation was given on how the amount of abatement was calculated in the 22 May 2008 and April 2009 offers.

96 Accordingly, I find that the respondent did breach its obligations under clause 39.2 of the lease. This gives rise to the issue as to what remedy that flows from such a breach. As mentioned above, it is the applicants’ contention that as a consequence of the breach it should be excused from paying any outstanding rent. In my opinion this cannot be correct.

Damages

97 Clause 39.2, like any other obligation on a party under the terms of a lease, if breached by the person on whom the obligation rests, gives rise to the usual remedies that are available in contract law. These include damages for loss suffered as a result of the breach and in certain circumstances termination of the lease. Section 72 of the RLA gives the Tribunal a broader range of remedies, however I do not believe excusing the applicant from paying the rent (including the abated rent) during the respondent’s construction works is warranted on the material; before the Tribunal.

98 The applicants have not pointed to any loss other than the loss that is attributable to the disturbance that was caused by the respondents construction work. Whether that loss arises by reason of a breach by the respondent under clause 39 or any other provision of the lease or section 34 of the RLA, is as a practical matter immaterial, as it is conceded that such loss is recoverable. What is disputed is whether the applicants did in fact suffer any loss, when the April 2009 offer of abatement is taken into account.

99 This was the subject of the reports of the experts Mr Gwynne and Mr Samuel: see Exhibit 1 at paragraphs 36 to 39(the conjoint report) and Exhibit A13, A14 and R21

100 Mr Gwynne calculated the applicants’ loss of profits due to the respondents construction work as totalling $170,116. When this figure is adjusted to take account of the rental abatement of April 2009, that loss was reduced to $62,330: see A1 Appendix Gwynne 4 at page 20.

101 Mr Samuel calculated that the applicants did not suffer any loss of profit after the rental abatement was taken into account. Instead he found that the applicants made a gain of $44,658: see A1 at Appendix Samuel 1.1 at page 21.

102 There are 3 key variables that give rise to the different conclusions reached by the experts. These are (a) different assumptions as to whether or not the applicants’ business suffered as a result of the opening of Kotara, (b) different assumptions as to the hypothetical or estimated gross profit the applicants would have earnt but for the respondent’s disturbances to its business, and (c) assumptions as to incremental wages.

103 The most significant difference is the impact of Kotara. Mr Gwynne assumed that the opening of Kotara had no impact whereas Mr Samuel assumed it had an impact to the value of $73,549 over the relevant period (i.e. February 2008 to 1 August 2009). In my opinion, having regard to the monthly gross sales of the applicants’ business for the 2004 to 2009 financial years, the assumption on which Mr Samuel made his calculations overestimates the ongoing impact of Kotara on the applicants’ business and that the assumption on which Mr Gwynne made his calculations are to be preferred. As noted by Mr Gwynne, after the dramatic fall in gross sales in September 2007, the monthly gross sales of the applicants’ business began to increase again. In January 2008, the gross sales were above that which had been earned the previous January. Accordingly, the impact of the re-opening of Kotara was minimal, if at all, from February 2008. Had the respondent not commenced construction there was every indication that the applicants’ business would continue to trade in the manner it had previously. Mr Samuel on the other hand used the average fall in monthly gross sales from September 2007 to January 2008 as being the indicator of the ongoing impact of Kotara on the applicants’ business. There may have been some justification for this if the closing of Kotara in May 2006 also shown a dramatic increase in monthly gross sales of the applicants’ business in the months that immediately followed. This is not evident in the monthly gross sales and there was no suggestion that the closing of Kotara substantially increased monthly gross sales at the Centre from May 2006 and thereafter. Accordingly, it is difficult to accept that there would be a long ongoing affect of the re-opening of Kotara.

104 In my opinion, on the material before the Tribunal, once the respondent had commenced construction in February 2008, the effect on the applicants’ business was dramatic as evidenced in the gross sales for February 2008. It was immediate and dramatic because construction commenced with the closure of the entry that was the main source of customer flow for the applicants’ business (i.e. the Harris Farm entry). After this the only explanation for the ongoing loss of monthly gross sales of the applicants’ business was the respondent’s construction work.

105 In regard to the hypothetical gross profit that the applicants would have earned, Mr Gwynne assumed a profit of 54.36%, which was the profit recorded by the applicants’ business in the 2007 financial year: see Exhibit A1 at paragraph 39b. Mr Samuel assumed a profit of 52.44% being the actual profit recorded for the year ended 30 June 2009. In my opinion, the assumption used by Mr Gwynne is to be preferred, as the applicants’ loss is to be measured on the basis of what they expected their business would have earned but for the respondent’s construction work.

106 The remaining difference relates to wage cost assumptions. Mr Gwynne estimated an amount of $35,000.904 as additional costs (i.e. cost of additional staff at $458.08 per week) to derive the expected sales during the period February 2008 to 1 August 2009. Mr Samuel assumed a more significant amount as the applicants had been working in the business for no salary. In my opinion, for the reasons I have already stated the approach of Mr Gwynne is to be preferred.

107 Accordingly, in summary, I find that the loss of profit suffered by the applicants’ business as a result of the respondent’s construction work is $170,116 and when the rent abatements are taken into account, the loss is $62,330.

THE RESPONDENT’S CLAIM

108 As mentioned above, in determining the amount of lost profit to the applicants’ business due to the respondent’s construction work, account has been made for the abated rent that was due and payable. Accordingly it is unnecessary to make any orders in respect of the respondent’s claim for outstanding rent.

109 Clause 29 of the lease required the applicants, at the end of the lease, to give back the premises to the respondent with all fit out (including fixtures and fittings, suspended ceiling, graphics and signage) removed, all finishes removed from the walls and damage made good and to re-instate all services to open plan. In addition to this the applicants were required to remove their property without causing any damage and in the event they left their property on the premises the respondent could keep it and remove and dispose of it at the applicants cost. This obligation remained even where the applicants were issued with a demolition notice: see clause 41.3 of the lease.

110 It is not disputed that the applicants vacated the premises without returning it to the position it had been in when they commenced the lease and as a result breached clause 29. In regard to the costs involved in making good the premises, the respondent tendered into evidence an estimate from G & C Brown, builders and shopfitters on the cost of de-fitting the premises: see Exhibit R1 at tab 57. The quote was dated 29 April 2009 and it was the evidence of Mr Francis that even though the premises were to be demolished, the shop was still required to be made good. He said BBL had not covered this in their costing of the demolition work and that they would charge extra for this. However, no evidence was placed before the Tribunal in this regard. Nor was the Tribunal informed as to any costs that were in fact incurred.

111 The applicants’ questioned the necessity of removing all floor finishes and substrate and grind and patch the original slab to a smooth finish and the removal of all plumbing and terminate at floor slab level. In my opinion there is merit to the applicants’ argument as to grinding etc the original slab. As the onus is on the respondent to prove its loss and without the benefit of hearing from Mr Brown who prepared the estimate, I will disallow this cost. As the cost is not itemised I will make an adjustment that I consider appropriate; namely $5,000.

112 Clause 29.2 of the lease provided that the respondent ‘may use the bank guarantee to recover’ its costs to make good the premises as a result of the applicants breach of its obligation to make good under this clause. The respondent has sought an order that it be entitled to draw upon the applicant’s bank guarantee for the amount it is owed; namely $30,800. It is appropriate for such an order to be made.

CONCLUSIONS

113 In summary, for the reasons set out above, the following is a summary of my findings:

(a) The applicants have established their claim for loss of profit as a result of the disruption to their business by the respondent’s construction work. Accordingly it is appropriate that an order be made for the respondent to pay the applicants the sum of $62,330 and that interest be payable pursuant to section 72A of the Retail Leases Act 1994.

(b) The respondent has established its claim for loss as a result of the applicants’ breach of its make good obligations under the lease. Accordingly it is appropriate to that an order be made that the applicants pay the respondent the sum of $30,800 and that the respondent is entitled to draw on the bank guarantee provided by the applicants to the extent necessary to satisfy this amount owing.

114 It is also appropriate that orders as to interest be made, however, in light of my findings I do not propose to make any final orders, but direct the parties to file orders in accordance with my findings and also to file and serve submissions on cost (if any).

The matter can then be finalised at a directions hearing on 26 July at 11am.